S&P 500 Drops From Record as Treasuries Gain, Oil Tumbles

By Stephen Kirkland and Callie Bost -
Jan 2, 2014

U.S. stocks fell, with the Standard &
Poor’s 500 Index starting the year lower for the first time
since 2008, as investors sold shares after the best annual gain
in 16 years. Treasuries and gold climbed, while crude oil slid.

The S&P 500 (SPX) dropped 0.9 percent from a record to 1,831.98
by 4:24 p.m. in New York while the Stoxx Europe 600 Index lost
0.7 percent. Ten-year Italian bond yields reached the lowest
level since May. The MSCI Emerging Markets Index retreated 1.2
percent as Chinese manufacturing slowed. Turkey’s lira slid to a
record low versus the dollar. Gold rallied after sinking 28
percent last year, while oil slumped 3 percent, the most in 14
months. Ten-year Treasury yields fell four basis points to 2.99
percent after touching 3.05 percent, the highest since 2011.

About $9.6 trillion was added to the value of global stocks
last year, the most in four years, as signs of a recovery in the
global economy lured investors to developed-market equities. The
first trading session of January had proven profitable for
investors over the previous five years, with the S&P 500 gaining
an average of almost 2 percent that day since 2009, according to
data compiled by Bloomberg.

“Stocks and the market in general are elevated so heavily,
so there’s always a risk in the company outlooks,” Walter Todd,
who oversees about $950 million as chief investment officer of
Greenwood Capital Associates LLC in Greenwood, South Carolina,
said in a phone interview. “I don’t think this sell-off will be
a trend. In fact, I would expect the market to trade up into
earnings season and January.”

Reports today confirmed factory output in the euro area
expanded last month at the fastest pace since May 2011 as
Italy’s manufacturing beat estimates and German production grew
for a sixth month. U.S. jobless claims declined last week to the
lowest level in a month while the Institute for Supply
Management’s manufacturing index declined less than forecast.

New Year

The S&P 500 rallied 30 percent in 2013 to close at an all-time high of 1,848.36 Dec. 31. The advance sent the benchmark
index’s valuation to 17.4 times reported earnings, the most
expensive level since 2010, data compiled by Bloomberg show.

Coca-Cola Co., General Electric Co. and DuPont Co. tumbled
at least 1.5 percent to lead a 0.8 percent decline in the Dow
Jones Industrial Average after the 30-stock gauge jumped 27
percent in 2013 for its biggest gain since 1995.

Apple Inc. (AAPL) retreated 1.4 percent after Wells Fargo & Co.
downgraded the stock and said profit margins may come under
pressure later in the year with the iPhone 6 cycle. Newmont
Mining Corp. advanced 4 percent as gold rebounded.

Economic Data

Jobless claims in the U.S. fell by 2,000 to 339,000 in the
period ended Dec. 28, the Labor Department said. The median
forecast of 26 economists surveyed by Bloomberg called for
344,000 claims. The ISM’s factory index fell to 57 in December
from the prior month’s 57.3, which was the highest level since
April 2011. Readings above 50 indicate expansion.

Equity returns will slow this year, Wall Street strategists
forecast. The S&P 500 will end 2014 at 1,950, according to the
average of 20 estimates compiled by Bloomberg. That represents a
5.5 percent gain from the end of 2013.

Analysts are predicting 116 stocks in the index will see
price declines this year, according to average year-end targets
compiled by Bloomberg. That’s the greatest number of bearish
forecasts for the S&P 500 in nine years, the data show.

The average company in the index is estimated to rise 4.8
percent this year, according to the data. That’s the least
optimistic forecast since Dec. 31, 2004, when the average was
4.7 percent. Alcoa Inc. (AA) and Harris Corp. are among the companies
projected to fall the most this year.

European Markets

The Stoxx 600 fell after rising as much as 0.3 percent
earlier in the day. The index climbed 17 percent in 2013, its
largest annual gain since 2009. It reached its highest level
since May 2008 Dec. 31.

Fiat SpA (F) shares surged 16 percent after the carmaker agreed
to buy the remaining stake in Chrysler Group LLC that it doesn’t
already own. Exor SpA, its biggest shareholder, jumped 4.5
percent. Debenhams Plc climbed 3 percent after the retailer’s
chief financial officer resigned. The stock slumped 12 percent
Dec. 31 after the company said profit will drop in the first
half of the financial year.

Ophir Energy Plc lost 8.2 percent after the U.K oil and gas
explorer said it didn’t find hydrocarbons at a well in Tanzania.
CGG SA slipped 3 percent after UBS AG lowered its rating on the
surveyor of oilfields.

“The weaker PMI probably heralds a weak start of economic
growth this year as China is still finding a new growth model,”
said Wang Zheng, the Shanghai-based chief investment officer at
Jingxi Investment Management Co. “The weaker economy will hold
back stocks and makes stock picks more difficult this year.”

China’s President Xi Jinping said in his first New Year’s
address that the world’s second-largest economy must press ahead
with reforms this year to bolster people’s livelihoods and make
the country “rich and strong.”

Turkish Declines

Turkey’s lira slipped as much as 1.9 percent to 2.1886 per
dollar and the country’s benchmark stock index fell 1.2 percent.
The currency tumbled the most since September 2011 last month as
a corruption probe racked Prime Minister Recep Tayyip Erdogan’s
cabinet and led three ministers to quit.

Brazil’s real sank 1.1 percent versus the dollar as the
central bank began a scaled-back program of support for the
currency.

Thailand’s SET Index (SET) slumped 5.2 percent, the most since
September 2011, and the baht slipped to the weakest level since
2010. Groups opposed to caretaker Prime Minister Yingluck Shinawatra’s plan to surround government ministries and occupy
20 major intersections in Bangkok Jan. 13 until she agrees to
step down and allow an unelected council to reform the country’s
electoral system, Suthep Thaugsuban, a former opposition
lawmaker who is leading the movement, said yesterday.

South Korea’s Kospi Index (KOSPI) tumbled 2.2 percent, the steepest
decline since July 2012, as Hyundai Motor Co. and Kia Motors
Corp. forecast their weakest sales growth in eight years.

Italy, Spain

Italian 10-year yields dropped as much as 17 basis points
to 3.96 percent, the lowest level since May, while the rate on
two-year Spanish notes fell to as low as 1.16 percent, the least
since Bloomberg started tracking the data in 1993.

The dollar strengthened against 14 of 16 major peers,
rising 0.7 percent to $1.3667 per euro while weakening 0.5
percent to 104.72 yen.

Gold futures rose 1.9 percent, the most in three weeks, to
$1,224.90 an ounce in New York on speculation that demand for
bars and jewelry will increase in Asia. Platinum posted the
biggest gain in more than two months, adding 2.9 percent, and
silver jumped 3.5 percent after a 36 percent plunge in 2013.

West Texas Intermediate oil dropped 3 percent to $95.44 a
barrel, the biggest decline since Nov. 7, 2012, and the lowest
closing level in a month.

The cost of insuring against losses on corporate bonds was
little changed, with the Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies at 71 basis
points. The gauge dropped 47 basis points last year, or 0.47
percentage point, following a 56-basis point decline in 2012.